TMI Blog2019 (8) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, the facts involved are in the converse. The dealer seeking relief is the subcontractor and the 4th respondent is the main contractor. The facts pertaining to award of work, the sub-contract under agreement dated 14.09.2011 and the execution of the work by the sub-contractor are all admitted facts. It is also pertinent to note that the sub-contractor is one of the two constituents constituting the main contractor which is admittedly a joint venture, and entirely formed for the purpose of executing the works contract awarded under the contract dated 30.08.2011. It is an admitted fact that all throughout the execution of the project spread over several years, the RA bills were raised by the main contractor and the payments were released by the employer to the account of the main contractor and TDS was suffered in the hands of the main contractor only. In the instant case, the facts are peculiar. The execution of the contract is undoubtedly by the petitioner who again is admittedly is a sub-contractor. The RA bills or the running account bills have admittedly been raised by the main contractor and payments in lieu of the running bills are made in favour of the main contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from K.m. 290.20 to K.m. 343.80 on NH 234 i.e., Sira Madugiri Section, in Karnataka under the special project scheme. The joint venture bid i.e., of the KMC JMC Constructions being the lowest, they were awarded the work vide Agreement dated 30.08.2011and Work Order of even date issued by the Executive Engineer, National Highways Special Division, Bengaluru. It was agreed between the constituents of the joint venture i.e., M/s. KMC Constructions Limited and M/s. JMC (the petitioner herein), that the entire work would be subcontracted to the petitioner. In lieu of the agreement, petitioner executed the entire work as a subcontractor for the joint venture entity of M/s. KMC Constructions and M/s. JMC Constructions and who being the main contractor would raise bills on the NHAI (Employer) from time to time. NHAI would then make payments to the main contractor i.e., the joint venture and while making such payments, NHAI would deduct tax at the rate of 4% as per the provisions of Section 9A of the KVAT Act, 2003 and issue TDS certificates to the joint venture entity. 5. It is further submitted that the petitioner did not pay tax on its works contract turnover since the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,268/- deducted by NHAI while making payments to the joint venture and later remitted to the State by NHAI in compliance of the provisions of S.9-A(5). 8. The 3rd respondent, however, rejected the petitioner s request in this regard and passed a reassessment order dated 28.03.2018 under Section 39(1) of the KVAT Act, 2003. The rejection order appears to be based on the circular issued by the Commissioner of Commercial Taxes on 23.12.2014 directing that there can be no transfer of TDS credit in favour of a third person. In the said reassessment order, the 3rd respondent observed that the TDS made in the name of M/s. KMC-JMC-(JV) the main contractor in this case amounting to ₹ 60,75,268/- cannot be given as credit to the tax payments to be made by M/s. JMC Constructions Private Limited, who is a subcontractor in this case. The 3rd respondent further levied interest and penalty under Sections 36(1) and 72(2) of the KVAT Act and issued a demand notice also dated 28.03.2018 calling upon the petitioner to pay the reassessed tax, interest and penalty within 30 days from service of the notice. 9. In support of his observation that adjustment of TDS in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expressed its opinion on a particular issue, then it would be wholly impracticable to expect subordinate authorities, including appellate authorities to take a contrary stand. The petitioner sought to invoke the extraordinary jurisdiction of this Hon ble Court under Article 226 of the Constitution of India. However, the learned Single Judge vide the impugned order, dismissed the writ petition and declined to exercise the writ jurisdiction of this Hon ble Court on the ground that there exists an efficacious and alternative remedy by way of an appeal under Section 62 of the KVAT Act, 2003. 13. It is submitted that the learned Single Judge has erred in passing the impugned order as it failed to appreciate that it would be an exercise in futility to approach any of the authorities designated under the Act, including the first appellate authority by way of an appeal under Section 62 of the KVAT Act, 2003, since the highest functionary in the Commercial Taxes Department i.e., the Commissioner of Commercial Taxes has already expressed his view on the issue at hand. Moreover, the KVAT Act, 2003 does not provide any avenues to challenge circulars issued under Section 59(1) and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to execution of the said work by the petitioner/sub contractor. It is also pertinent to note that the revenue has not denied the factum of the petitioner having entered into a contract with the main contractor and the factum of execution of the contract work having been entrusted to the petitioner by the main contractor as a back to back contract i.e., entrustment of execution of the entire works contract only. 18. The fulcrum of the defence set up by the respondents is the circular issued by the Commissioner of Commercial Taxes dated 23.12.2014 vide Annexure E to the writ petition, whereby the Commissioner of Commercial Taxes placing reliance on the provisions of the Section 9A of the KVAT Act, 2003, as ordered as under: 7. Further, it is also noticed that the sub contractors who are executing the woks contract on behalf of the main contractors are requesting the departmental officers to adjust the tax deducted at source by the TDS authorities payable to the main contractor towards their tax liability instead of refunding to the main contractor. There are also instances where the main contractors have requested to adjust the amount of tax deducted from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat arise in the course of implementation of the statute. It is admitted in paragraph 10 that as a practice, the VAT officers were giving set off to the sub contractors for the TDS in the hands of the main contractor, even when the main contractor had not given up their rights to seek for refund or set off or adjustment on account of the TDS credited as against their account. It is further contended that as the petitioner has not laid any challenge to the validity of Rule 44(3)(f) of the KVAT Rules, the challenge to the circular is impermissible, as the circular is in consonance with the provisions of clause (f) of Rule 44(3) of the KVAT Rules, 2005. It is pertinent to note that an attempt is made to justify the circular in terms of Rule 44(3)(f) of the KVAT Rules. 20. On perusal of the circular, it is seen that no reliance is placed by the Commissioner of Commercial Taxes on the provisions of Rule 44(3)(f) and on a comprehensive reading of the same, the inference one can draw is that the circular has been found necessary by the Commissioner to deter the VAT officers from giving set off to the sub contractors on account of the TDS in the hands of the main contractor. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are required to act as trustees in respect of the carried forward credit held in favour of the main contractor. 23. It is further fairly admitted that subsequently the main contractor has omitted to declare this VAT TDS credit even in the column 5.3.2. That despite the nondeclaration of the amount in column 5.3.2, the total VAT TDS amount is still reflected as lying in credit of the main contractor. It is further deposed that the provisions of Section 10(5) of the KVAT Act does not prescribe any limitation for claiming refund and hence, it is contended that the tax assessment in respect of the petitioner will not amount to double taxation in respect of the same transaction. 24. It is further deposed that though the total receipts for the works contract is taxable at the rate of 4% under the compensation scheme, but insofar as it relates to interstate and URD purchases, the petitioner is liable to pay tax at the applicable rate. It is further deposed that on account of these factors i.e., interstate goods and the URD purchases, the total tax liability of the sub contractor may even exceed the total amount deducted as VAT TDS and that the VAT TDS is only a saf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid letter, the 4th respondent/main contractor has stated that it has sub contracted the entire work to the petitioner on a back to back basis and on account of the same, the works contract was executed by the sub contractor only and no other tax liability has been incurred by the main contractor. It is further stated that the JV is not carrying on any other activity or business and hence has not incurred any other tax liability at all. It has also detailed the work executed between 2012-13 to 2016-17. It has also enclosed the various TDS certificate in Form 156 in all aggregating to ₹ 5,12,83,419/- lying in the account of the respondent revenue department. 29. It is further reiterated by the learned Sr. Counsel that the entire work had been entrusted to the sub contractor and hence, the TDS should enure to the benefit of the sub contractor, as the said tax has been deducted at source on account of the work executed by the sub contractor out of the bill raised by the main contractor against such executed work and that the work executed is the only taxable event. It is further stated that the main contractor has assumed that the revenue authorities would accordingly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the anticipation that the JV may claim in the future. Thus, I as joint director of the JV, hereby confirm that the JV has not claimed any refund whatever and the JV gives up its right to claim refund subject to the Revenue giving credit of the entire TDS to the sub contractor appellant s account. 33. From the above discussion, what this Court is able to discern is that the 4th respondent was awarded a works contract i.e., for upgradation of the carriageway from K.m. 290.20 to K.m. 343.80 by the NHAI. That the 4th respondent is a joint venture of two independent entities separately registered as dealers under the Act. The JV is also independently registered under the Act as a dealer and has been allotted a separate tin number i.e., in effect, the constituents of the joint venture, though are independently registered as dealers have acquired the status of separate entity on account of their joint venture entity being registered as an independent dealer under the Act. The other admitted fact is that the JV has further agreed to sub contract the entire works contract to one of its constituents i.e., the petitioner. Hence, the petitioner is peculiarly placed. As a consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Balaji Computers and others Vs. State of Karnataka and others reported in 2005 (59) KAR.L.J. 529 wherein it was held as under: Merely because, the proviso given to Subsection (1) of Section 3-A of the Karnataka Sales Tax Act, 1957, prohibits the Commissioner to give any instructions which interferes with the power of the Appellate Authority, in our view, it is not possible to even remotely think that the concerned authorities will go against the instructions given by the Commissioner in Circular, Annexure-D and give scope for any disciplinary proceedings against them. It is necessary to point out that going against the instructions would result in revenue loss to the State, and therefore, no Officer can afford, apart from the fact that he is obliged under Section 3A (1) of the Act, to carry out the instructions of the Commissioner, which may attract disciplinary proceedings resulting in his removal from service. Under these circumstances, in the light of the clear unequivocal instructions/directions given by the Commissioner as stated above, in my view, filing objections before the Assessing Authorities would be an empty formality. Such a remedy available to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or has rendered a detailed opinion and the division bench has also opined that it is not possible, even to remotely think, that the concerned authorities will go against the instructions given by the Commissioner in the form of a Circular and thereby give scope for initiation of disciplinary proceedings against them. It has also observed that going against the instructions could be construed as an act resulting in revenue loss to the State and be made a ground to initiate disciplinary proceedings resulting even in his/her removal from service. That apart, the coordinate bench has also placed reliance on provisions of Section 3-A(i) of the Act to hold that the subordinate officers are bound to carry out the instructions of the Commissioner. 40. The fulcrum of the defence in the instant case is the Circular dated 23.12.2014 issued by the Commissioner of Commercial Taxes bearing No.I C/DC(A3)/CR-104/2014-15 produced at Annexure-E to the writ petition. The Commissioner in paragraphs 7,8 and 9 of the Circular has issued instructions amounting to prohibiting the VAT Officers from giving set off or adjusting the tax deducted at source by the TDS Authorities towards the tax lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxes Department, authorized by the Government or the Commissioner to perform such functions as may be assigned to him. 42. On a plain reading of the above definition in conjunction with Rule 148 of the 2005 Rules, makes it apparent that the appellate authority is an officer subordinate in rank to the Commissioner and such Officer acts as an appellate authority on the authorization by the Commissioner. In that view of the matter, we are of the considered opinion that the law laid down by the coordinate bench in the case of Ashok Agencies referred supra is squarely applicable in the facts of the instant case also and hence, we hold that the writ petition is maintainable as the remedy of appeal is not an efficacious remedy in the peculiar circumstances of the case. 43. This legal position is also fairly admitted by the respondents and hence the impugned order of the learned Single Judge requires to be set aside and is set aside and the point for consideration with regard to maintainability is answered in favour of the petitioner. 44. With regard to the other point formulated for consideration by the bench, we proceed to adjudicate the same in view of the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The Assessing Officer as well as the Appellate Tribunal and this Court also ruled against the assessee thereby affirming the view taken by the Revenue. The said judgment dated 03.02.2006 was carried in appeal in Civil Appeal No.2956/2007 and the subsequent appeal is on account of the similar treatment meted out to the assessee and the Civil Appeal No.7241/2016 was an appeal by the Revenue on account of this Court having held that the value of the work awarded to the sub-contractors cannot be included for computing the total turnover of the assessee and the assessment in respect of the said year was answered against the Revenue contrary to the earlier view. 47. The Hon ble Apex Court while determining the issues arising in the above appeals has placed reliance on its own ruling rendered in the case of STATE OF ANDHRA PRADESH VS. LARSEN AND TOUBRO LIMITED AND OTHERS reported in 2008 (9) SCC 191. The Apex Court has noted that the Revenue has made an attempt to contend that the provisions of the State Act are not on pari materia with the provisions of the Andhra Pradesh enactment. The Hon ble Apex Court after adverting to certain provisions of the Karnataka Act namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t transfer of property in goods becomes a necessary event and unless there is a transfer of property, the amount paid is not to be included in the total turnover. It has further held that a taxable event is the transfer of property in goods involved in the execution of a works contract and that the said transfer of property in goods takes place when the goods are incorporated in the works. 51. It is apparent that the above ruling has been rendered under the KST Act, 1957. In that view of the matter we are required to examine as to whether the proposition of law so unambiguously declared by the Hon'ble Apex Court is applicable to the instant case in the light of the provisions of the KVAT Act, 2003? In this regard we are required to examine certain provisions of the 2003 Act, i.e., Section 2 (12) Dealer means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes. Section 2 (12) (g) - a person engaged in the business of transfer of property in goods (whether as goods o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax under sub-section (5), shall be eligible for refund or adjustment of any amount of tax collected on his purchase, which is in excess of the tax payable on his turnover relating to sale of such goods, and the burden of proving that the tax has been collected and paid in accordance with the said sub-section shall be on the dealer; Section 7 (1) - Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, and subject to sub-section (2), the sale of goods shall be deemed to have taken place at the time of transfer of title or possession or incorporation of the goods in the course of execution of any works contract whether or not there is receipt of payment: Provided that where a dealer issues a tax invoice in respect of such sale within fourteen days from the date of the sale, the sale shall be deemed to have taken place at the time the invoice is issued. Section 9-A - Deduction of tax at source (in case of works contract) (1) Notwithstanding anything contained in this Act, the Central Government, or any State Government, or an industrial, commercial or tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o answer the description of a dealer must indulge in the transfer of goods in either one of the modes detailed in the provision. Clause (g) deals with works contract and also refers to a transfer of property. 55. Section 2(29) defines Sale to mean, every transfer of property goods. Clause (b) pertains to works contract and the reference is to transfer of property. Similarly Section 2(36) defines Turnover to mean the aggregate of amount for which goods are sold, or distributed or delivered or otherwise disposed off. In essence it refers to a transfer of property or goods. Section 2(37) defines works contract as an agreement for carrying out certain works for cash or deferred payment or other valuable consideration, i.e., towards the transfer of the property to the beneficiary or the accretion of goods in his hands. Yet again the accent is on the transfer, either by way of transfer or accretion. 56. Further, clause (a) of sub-section 6 of section 4, of the Act is an enabling provision whereby a dealer who is not liable to tax is entitled to seek adjustment of any amount of tax collected on his purchase and which is in excess of the tax payable on his turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue made out such a case. If the interpretation as placed by the revenue is accepted then the same work would suffer tax at the hands of the main contractor, when the sub-contractor completes the execution of that work contracted and the same work would also suffer tax at the hands of the employer when the goods or the work is handed over or transferred to the Owner/Employer. 59. The facts involved in the instant writ petition are marginally different, in that the set off or adjustment is claimed by the sub-contractor whereas in the case of L T, the claim was by the main contractor itself. The main contractor i.e., the L T was seeking absolution of tax liability on account of the tax compliance made by the sub- contractors. 60. In the instant case, the facts involved are in the converse. The dealer seeking relief is the subcontractor and the 4th respondent is the main contractor. The facts pertaining to award of work, the sub-contract under agreement dated 14.09.2011 and the execution of the work by the sub-contractor are all admitted facts. It is also pertinent to note that the sub-contractor is one of the two constituents constituting the main contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the taxable event will not exempt the dealer from submitting his returns or circumscribe the rights of the Revenue to seek for accounts and details as enabled under the Act. 62. In the instant case, the facts are peculiar. The execution of the contract is undoubtedly by the petitioner who again is admittedly is a sub-contractor. The RA bills or the running account bills have admittedly been raised by the main contractor and payments in lieu of the running bills are made in favour of the main contractor only and TDS is at the hands of the main contractor only and consequently the accretion of goods to the employer happened at the hands of the main contractor only. That being the case, the taxable event happened at the hands of the main contractor only. In that view of the matter, the accretion of goods and transfer of property being the taxable event, the same was at the hands of the main contractor and TDS has been suffered in the hands of the main contractor and there being no taxable event in the hands of the sub-contractor, we are of the considered view that in the light of the law laid down by the Hon ble Apex Court as stated supra, the writ petition require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eep even a sub-contractor, and we conclude so in view of the language employed in clause (g) of sub Section (12) of Section 2. 67. Admittedly, the petitioner is a subcontractor and 9-A(11) enables such a dealer to demonstrate that the tax on such works contract has already been remitted. Hence, prima facie the applicability of Rule 44 (3) (f) to works contract and cases of sub-contractor prima facie appears to be contrary to the provisions of Section 9-A (10) and (11). We also draw succour in favour of our conclusion in the light of the provisions of Rule 6 of the Karnataka Sales Tax Rules which pertains to determination of total and taxable turnover. If the distinction as set out in Rule 6 are read in conjunction with the provisions of Rule 9-A (10) and (11) of the KVAT Act, 2003, then the only inescapable conclusion that one could arrive, at is that the rigors of Rule 44(3)(f) are inapplicable in respect of assesses who execute works contract as sub-contractors as in the instant case and sub-contractors form the excepted class. We are of the view that the assesses who fall within the scope of Section 9-A(10) and (11) are excepted from the applicability of Rule 44(3)(f). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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